Small and Large Firms over the Business Cycle

Nicolas Crouzet () and Neil Mehrotra
Additional contact information
Nicolas Crouzet: https://www.kellogg.northwestern.edu/faculty/crouzet/html/index.html
Neil Mehrotra: https://www.newyorkfed.org/research/economists/mehrotra

No 741, Working Papers from Federal Reserve Bank of Minneapolis

Abstract: Drawing from confidential firm-level data of US manufacturing firms, we provide new evidence on the cyclicality of small and large firms. We show that the cyclicality of sales and investment declines with firm size. The effect is primarily driven by differences between the top 0.5% of firms and the rest. Moreover, we show that, due to the skewness of sales and investment, the higher cyclicality of small firms has a negligible influence on the behavior of aggregates. We argue that the size asymmetry is unlikely to be driven by financial frictions given 1) the absence of statistically significant differences in the behavior of production inputs or debt in recessions, 2) the survival of the size effect after directly controlling for proxies of financial strength, and 3) the predictions of a simple financial frictions model, in which unconstrained (large) firms contract more in recessions than constrained (small) firms.

Keywords: Firm size; Business cycles; Financial accelerator (search for similar items in EconPapers)
JEL-codes: E23 E32 G30 (search for similar items in EconPapers)
Pages: 81 pages
Date: 2017-09-05
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-mac and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmwp:741

DOI: 10.21034/wp.741

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